Microsoft Corp. shares have rebounded strongly, closing in on their record high from last July. The stock rose about 16% in May, marking its best monthly performance in over three years.
This rally is driven by a broader U.S. stock market recovery and impressive growth in Microsoft’s Azure cloud business, fueled by increasing demand for artificial intelligence (AI) services.
Azure’s revenue grew 33% in the third quarter of fiscal 2025, surpassing expectations. AI contributed significantly to this growth, accounting for 16 percentage points of the increase.
Microsoft’s Intelligent Cloud segment, which includes Azure, reported $26.8 billion in revenue, a 21% rise year-over-year, with operating income up 17% to $11.1 billion. The company’s investments in AI infrastructure and data centers have supported this expansion, positioning Azure as a key revenue driver.
This turnaround contrasts with last year when Microsoft lagged behind peers like Apple, Nvidia, and Meta due to concerns over AI competitiveness and slower Azure growth.
However, in 2024, Microsoft’s stock rose only 12%, the weakest among the “Magnificent Seven” tech giants. In 2025 so far, Microsoft’s shares have gained 9%, outperforming most peers except Meta, which is up 10%.
Microsoft’s strong earnings report showed revenue and profit exceeding Wall Street estimates. CFO Amy Hood noted that non-AI Azure services also outperformed expectations, including databases and storage.
Analysts from TD Cowen forecast AI-related Azure revenue to reach about $24 billion by fiscal 2026, up from $4 billion in 2024, and raised their price target for Microsoft shares to $540, implying an 18% upside.
Despite recent sideways trading, some investors see Microsoft as a top long-term opportunity in AI due to its ability to monetize ongoing AI activity with high margins. CEO Satya Nadella emphasized the company’s innovation across AI infrastructure, platforms, and applications as essential to business growth.
Microsoft’s valuation stands at about 30 times projected earnings for the next 12 months, higher than the Nasdaq 100 average of 26 times. The company’s diversified portfolio, including Windows, Xbox, and advertising, also contributes to steady revenue growth in its More Personal Computing segment, which rose 6% in Q3 2025.
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